BROAD STOCK MARKET TRADE ALERT (5:00 pm EST)
The broad stock market indices (DOW, S&P 500, NASDAQ) are now all edging up against strong areas of resistance and stalling as we near the end of a strong reversal zone for this market (Jan. 9 - 17) so it looks like a good time to consider selling this market short. I am hesitating a bit here because yesterday a frequently "hawkish" Kansas City Fed President, Esther George, gave a public statement declaring that it might be a good time for a pause in interest-rate hiking. This surprisingly dovish comment from a central bank official may have given a bullish lift to the broad stock market today, and in fact some short-term technical indicators are looking more bullish. Although tomorrow technically ends the current strong reversal zone, it could extend into next week as there is a weaker reversal zone that overlaps the current one and runs through Jan. 28. My point here is that there's a chance equity markets could push higher into next week and still be in a reversal zone for a top.
So what should we do? At the end of today's trading the DOW was up 141 points but down from today's high and closed in the middle of today's range. Both the S&P 500 and the NASDAQ closed well below today's highs and in the lower end of their day's range. This is a bearish sign and we could be seeing a top here. I am going to sell this market short now and enter a short position for tomorrow's market open. If the market falls steeply tomorrow (without first exceeding today's highs) then we can use today's highs as a stop loss for our short trade. If equities instead rally some more, I will determine an upper stop loss point based on the behavior of the market. For now that stop loss would be 25,150 in the DOW and 2,700 in the S&P 500, but I may lower these levels depending on how the market moves into the end of the week.
The broad stock market indices (DOW, S&P 500, NASDAQ) are now all edging up against strong areas of resistance and stalling as we near the end of a strong reversal zone for this market (Jan. 9 - 17) so it looks like a good time to consider selling this market short. I am hesitating a bit here because yesterday a frequently "hawkish" Kansas City Fed President, Esther George, gave a public statement declaring that it might be a good time for a pause in interest-rate hiking. This surprisingly dovish comment from a central bank official may have given a bullish lift to the broad stock market today, and in fact some short-term technical indicators are looking more bullish. Although tomorrow technically ends the current strong reversal zone, it could extend into next week as there is a weaker reversal zone that overlaps the current one and runs through Jan. 28. My point here is that there's a chance equity markets could push higher into next week and still be in a reversal zone for a top.
So what should we do? At the end of today's trading the DOW was up 141 points but down from today's high and closed in the middle of today's range. Both the S&P 500 and the NASDAQ closed well below today's highs and in the lower end of their day's range. This is a bearish sign and we could be seeing a top here. I am going to sell this market short now and enter a short position for tomorrow's market open. If the market falls steeply tomorrow (without first exceeding today's highs) then we can use today's highs as a stop loss for our short trade. If equities instead rally some more, I will determine an upper stop loss point based on the behavior of the market. For now that stop loss would be 25,150 in the DOW and 2,700 in the S&P 500, but I may lower these levels depending on how the market moves into the end of the week.
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